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An employee enters into a contract “of” service but a contractor enters into a contract “for” services.

These words can matter. When writing an agreement with a contractor, use the words “for services” in your agreement.

If Inland Revenue checks to see whether the person working for you is an employee or a self-employed person, it may ask to see your agreement. The department will, of course, consider all the factors available. If the case is borderline, the wording of your contract could make the difference between having an employee and engaging a contractor.

If the person should have been an employee, you should have deducted PAYE from your payments and the employee should not have claimed any expenses. Inland Revenue has listed tests it uses to decide whether PAYE should be deducted. These can be found on its website.

If you have a borderline case, consult us. It’s not safe just to agree that someone working for you does so as a contractor.